The DCIT, Cir. 1(1), V. M/s Kowa Spinning Mills Ltd.,

ITA 853/IND/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8018 (ITAT-INDORE)
• Duration Of Justice: 5 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-03-2010
• Assessment Year: 1996-1997
• Appeal Filed On: 08-10-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: C P RAWKA
• Keywords: Bogus purchase; Unexplained investment; Corroborative evidences
• Section: 143(3)

Judgement Text

PAGE 1 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : N.A. I.T.A.NO.853/IND/2004 A.Y. : 1996-97 DY. CIT, M/S. KOWA SPINNING MILLS LIMITED, 1(1), VS MANAS BHAWAN, R.N. T. MARG, INDORE. INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.K. SINGH, CIT DR RESPONDENT BY : SHRI C.P. RAWKA, FCA DATE OF HEARING : 11/03/2010 O R D E R PER V.K. GUPTA, A.M. THIS APPEAL FILED BY THE REVENUE ARISES OUT OF ORDE R OF THE LD. CIT(A)-I, INDORE, DATED 13.7.2004, FOR THE ASSESSME NT YEAR 1996-97. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. GROUND NO. 1 READS AS UNDER :- PAGE 2 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DIRECTING A.O., TO VERIFY THE FACTS ON THE FOLLOWING ISSUES, WHICH IS NOT AS PER LAW :- (I) ON THE ADDITION OF RS. 83,99,519/- ON ACCOUNT OF INFLATED PURCHASES. (II) ON THE ADDITION OF RS. 45,00,000/- ON ACCOUNT OF INVESTMENT (NON-TRADE) (III) ON THE ADDITION OF RS. 30,00,000/- ON ACCOUNT OF INVESTMENT FROM UNDISCLOSED SOURCES IN THE FORM OF SUNDRY DEBTORS. (IV) ON THE ADDITION OF RS. 3,84,045/- ON ACCOUNT OF UNDERSTATED ASSETS IN THE ACCOUNT OF M/S. GARUDA TEXTILE PVT.LTD. (V) ON THE ADDITION OF RS. 10,00,600/- ON ACCOUNT OF UNDERSTATED ASSETS IN THE ACCOUNT OF M/S. SHRI KISHANLAL NANDLAL & COMPANY. (VI) ON THE ADDITION OF RS. 14,78,955/- ON ACCOUNT OF BOGUS PURCHASES. (VII) ON THE ADDITION OF RS. 17,18,000/- ON ACCOUNT OF SUPPRESSION OF SALES. PAGE 3 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE (VIII) ON THE ADDITION OF RS. 23,53,629/- ON ACCOUNT OF INCREASE OF SALES BEING SALES RETURN NOT GOOD. (IX) ON THE ADDITION OF RS. 1,75,000/- ON ACCOUNT OF UNEXPLAINED INVESTMENT IN ACCOUNT OF MAYA SHREE FINANCE. (X) ON THE ADDITION OF RS. 3,45,300/- ON ACCOUNT OF INFLATED PURCHASES IN THE NAME OF CONTAINER-WAY INTERNATIONAL LIMITED. (XI) ON THE ADDITION OF RS. 2,86,131/- ON ACCOUNT OF SUPPRESSION OF SALES IN THE NAME OF CHHAGANLAL KISHANLAL & CO. 4. THE LD. CIT DR, SUBMITTED THAT AT THE TIME WHEN THE APPELLATE ORDER WAS PASSED, THE LD. CIT(A) HAD NO POWER TO SE T-ASIDE THE APPEAL TO THE FILE OF A.O. THE LD. CIT DR FURTHER SUBMITTED T HAT AT THE MOST THE LD. CIT(A) COULD HAVE CALLED REMAND REPORT FROM THE A.O . AND SHOULD HAVE TAKEN A DECISION AT HIS LEVEL. HAVING STATED SO, TH E LD. CIT DR REFERRED TO THE OBSERVATIONS OF THE LD. CIT(A), WHEREIN THE LD. CIT(A) HAS REFERRED THE MATTER BACK TO THE A.O. TO EXAMINE THE FACTS OF THE ISSUES INVOLVED AND IF THE ASSESSEES CLAIM WAS FOUND FACTUALLY COR RECT, THEN THE ADDITION WOULD STAND DELETED, MEANING THEREBY IF THE STAND O F THE ASSESSEE WERE NOT FOUND FACTUALLY CORRECT THEN THE A.O. HAD TO MA KE THE DISALLOWANCE. PAGE 4 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE THUS, ACCORDING TO THE LD. CIT DR, IN SUM AND SUBST ANCE, THE LD. CIT(A) SET-ASIDE THE ISSUE TO THE FILE OF A.O. AND, THEREF ORE, THE MATTER SHOULD GO BACK TO THE FILE OF THE LD. CIT(A) TO DECIDE THIS I SSUE AS PER LAW. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE SEIZED MATERIAL WAS BEFORE THE A .O., HE SHOULD HAVE EXAMINED BEFORE MAKING ANY ADDITION, HENCE, SUCH AC TION OF THE LD. CIT(A) WAS CORRECT IN LAW. 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 7. IT IS NOT IN DISPUTE THAT NOW THERE IS NO POWER OF SET-ASIDE WITH THE LD. CIT(A), HENCE NOTHING PREVENTED TO CALL THE REMAND REPORT OR ALTERNATIVELY, HE SHOULD HAVE VERIFIED THE RECORDS HIMSELF AND, ACCORDINGLY, A VIEW SHOULD HAVE BEEN TAKEN ON THE I SSUE ON MERITS. HOWEVER, IT HAS NOT DONE AND THE DIRECTIONS OF THE LD. CIT(A) AMOUNT TO SET-ASIDE OF THE MATTER. IT IS ALSO PERTINENT TO ME NTION HERE THAT NO EFFECT HAS BEEN GIVEN BY THE A.O. SO FAR AS SUBMITTED BY BOTH THE PARTIES BEFORE US. THUS, THE ISSUES HAVE REMAINED PENDING EVEN AFT ER LAPSE OF SUCH SUBSTANTIAL TIME. HENCE, WE RESTORE ALL THE ISSUES RAISED IN THIS GROUND TO THE FILE OF LD. CIT(A) FOR DECISION THEREON AS PER LAW AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. WE FURTHER ACCEPT THAT A VIEW IN THE MATTER PAGE 5 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE WOULD BE TAKEN AS EXPEDITIOUSLY AS POSSIBLE. THUS, THIS GROUND OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. 2 READS AS UNDER :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN DELETING THE FOLLOWING ADDITIONS :- (I) OF RS. 29,16,000/- MADE ON ACCOUNT OF DISALLOWANCE OF LEASE RENT TO SYSTEMATIC CORPORATE. (II) OF RS. 5,00,000/- ON ACCOUNT OF PROFIT OF TRADING O F COTTON OUT OF BOOKS OF ACCOUNT. (III)OF RS. 5,00,000/- ON ACCOUNT OF DISALLOWANCE O F PRE- OPERATIVE EXPENDITURE. (IV)OF RS. 1,23,80,196/- ON ACCOUNT OF UNACCOUNTED SALES ON LOW YIELD COTTON YARN. (V) OF RS. 5,00,000/- ON ACCOUNT OF DISALLOWANCE OF MISC. EXPENDITURE. 9. AS REGARD TO THE ISSUE RAISED IN GROUND NO. 2(I), I T IS NOTED THAT THE A.O. MADE THE IMPUGNED DISALLOWANCE FOR THE REA SON THAT THE LEASE AGREEMENT APPEARED TO BE NON-GENUINE AND THE DOCUME NTARY EVIDENCES REGARDING ACQUISITION OF FIXED ASSETS IN THE FORM O F GAS CYLINDERS ETC. REMAINED UNVERIFIED. ON APPEAL, THE LD. CIT(A) FOUN D THAT M/S. PAGE 6 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE SYSTEMATIC CORPORATION SERVICES AND SYSTEMATIC CONS ULTANCY SERVICES PRIVATE LIMITED, WERE ONE ENTITY AND IN EARLIER ASS ESSMENT YEAR I.E. ASSESSMENT YEAR 1995-96, THE A.O. HAD ALLOWED THE C LAIM OF THE ASSESSEE IN AN ORDER PASSED U/S 143(3) AND AFTER EXAMINING T HE ISSUE IN DETAIL. HENCE, THE LD. CIT(A) HELD THAT THE A.O. SHOULD HAV E TAKEN COGNIZANCE OF THESE FACTS IF NO DETAILS WERE COMING FROM THE A SSESSEE SIDE. ACCORDINGLY, THE LD. CIT(A) DELETED THE ADDITION. A GGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 10. THE LD. CIT DR PLACED CONSIDERING RELIANCE ON THE O RDER OF A.O. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE O THER HAND, NARRATED THE FACTS AND PLACED STRONG RELIANCE ON THE ORDER O F LD. CIT(A). 11. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 12. IT IS NOTED THAT THE ASSESSEE HAS TAKEN CERTAIN ASS ETS ON LEASE FROM M/S. SYSTEMATIC CORPN. SERVICES, WHICH IS ONE OF THE UNITS/DIVISIONS OF M/S. SYSTEMATIC CONSULTANCY SERV ICES PRIVATE LIMITED AND THIS TRANSACTION IS A CONTINUING ONE FROM EARLI ER YEAR WHEN THE SAME HAS BEEN HELD AS GENUINE. HENCE, IN OUR VIEW, THE L D. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER. THUS, THIS GROUND OF REVENUE STANDS DISMISSED. PAGE 7 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE 13. AS REGARD TO THE ISSUE RAISED IN GROUND NO.2(II), T HE FACTS, IN BRIEF, ARE THAT THE ASSESSEE WAS HAVING SUFFICIENT CASH BALANCE IN THE BOOKS OF ACCOUNT, WHICH RESULTED INTO AN INFERENCE OF SALE OF COTTON OUTSIDE THE BOOKS OF ACCOUNT BY THE ASSESSING OFFIC ER AND HE MADE AN ADDITION OF RS. 5 LAKHS AS PROFIT ON SUCH PURCHASES AND SALES. IN APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT THERE WAS NO EVIDENCE FOUND IN THE COURSE OF SEARCH AS REGARD TO ASSESSEE BEING ENGAGED IN SALES AND PURCHASE OF COTTON OUTSIDE THE BOOKS OF ACCOUNT OR THERE WAS NO OTHER MATERIAL WITH THE A.O., HENCE, SUCH ADDITION WAS NO T JUSTIFIED. THE LD. CIT(A), AGREEING WITH THESE SUBMISSIONS OF THE ASSE SSEE HELD THAT THERE WAS ABSOLUTELY NO BASIS FOR MAKING SUCH ESTIMATED A DDITION. HENCE, HE DELETED THE IMPUGNED ADDITION. AGGRIEVED BY THIS, T HE REVENUE IS IN APPEAL BEFORE US. 14. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 15. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. IT IS NOTED THAT THIS ADDITION MADE BY THE ASSESSING OFFICER IS WITH OUT ANY MATERIAL FOUND IN THE COURSE OF SEARCH OR OTHERWISE IN THE COURSE OF ASSESSMENT PROCEEDINGS, HENCE, IN OUR VIEW, NO ESTIMATION CAN BE DONE MERELY ON THE PAGE 8 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE BASIS OF QUANTUM OF CASH BALANCE IN THE BOOKS OF AC COUNT. ACCORDINGLY, WE HOLD THAT THE ORDER OF THE LD. CIT(A) IS CORRECT IN LAW. HENCE, WE DISMISS THIS GROUND OF THE REVENUE ALSO. 16. AS REGARD TO GROUND NO.2(III), THE FACTS, IN BRIEF, ARE THAT THE A.O. MADE A DISALLOWANCE OF RS. 5 LAKHS FOR THE REA SON THAT IN THE BALANCE SHEET, THE ASSESSEE HAD SHOWN MISC. EXPENSES TO THE EXTENT NOT WRITTEN OFF AND THE SPECIAL AUDITOR HAD ALSO COMMENTED ON THIS ISSUE. HENCE, THE A.O., ADDED A SUM OF RS. 5 LAKHS FOR WANT OF VERIFI CATION/EXPLANATION FROM THE ASSESSEE. IN THE APPEAL, THE ASSESSEE SUBM ITTED THAT IT HAD NOT BEEN CLAIMED AS AN EXPENDITURE IN THE PROFIT AND LO SS ACCOUNT. HENCE, THERE WAS NO QUESTION OF ANY DISALLOWANCE. THE LD. CIT(A) DELETED THE SAME. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL B EFORE US. 17. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 18. ON DUE CONSIDERATION OF FACTS AND CIRCUMSTANCES, WE FIND THAT NO SUCH DISALLOWANCE CAN BE MADE AS THE ASSESSEE HA S NOT CLAIMED ANY EXPENDITURE OUT OF SUCH MISC. EXPENSES AT THE FIRST INSTANCE. ACCORDINGLY, WE CONFIRM THE FINDINGS OF THE LD. CIT(A). THUS, TH IS GROUND OF THE REVENUE IS ALSO DISMISSED. PAGE 9 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE 19. AS REGARD TO ISSUE RAISED IN GROUND NO. 2(IV), THE FACTS, IN BRIEF, ARE THAT THE A.O. BASED UPON THE YIELD PERCENTAGE S HOWN IN THE CASE OF SISTER CONCERN, AT 90 % HELD THAT THE ASSESSEE WAS SHOWING LOW YIELD AND, THUS, THE ASSESSEE WAS SELLING OUTSIDE THE BOOKS. T HE A.O. ALSO RELIED ON THE OBSERVATIONS OF THE SPECIAL AUDITOR IN THIS REG ARD AND WORKED OUT THE UNRECORDED SALES AT RS. 23.80 LAKHS BY TAKING THE Y IELD PERCENTAGE AT 90 % AS AGAINST YIELD PERCENTAGE OF 87.56 % SHOWN BY T HE ASSESSEE AND MADE THE IMPUGNED ADDITION. IN APPEAL, THE ASSESSEE SUBMITTED THAT THE TRIBUNAL IN ASSESSMENT YEARS 1991-92 & 1992-93 HAS UPHELD THE PERCENTAGE OF YIELD SHOWN BY THE ASSESSEE. IT WAS A LSO CONTENDED THAT THE ASSESSEES OPERATIONS WERE UNDER THE SUPERVISION OF CENTRAL EXCISE AUTHORITIES AND ALL THE RELEVANT DOCUMENTS WERE WIT H THE A.O. HENCE, THE FACT OF THE ASSESSEES YIELD CAN BE VERIFIED IT WAS ALSO CONTENDED THAT THE ASSESSEES OWN HISTORY WAS THE BASE GUIDE AS COMPAR ED TO THE YIELD PERCENTAGE SHOWN BY THE OTHER CONCERN, BECAUSE, TH ERE COULD BE SEVERAL FACTORS SUCH AS DIFFERENCE IN PROCESSES OR MACHINER Y FOR THE DIFFERENCE IN THE YIELD OF TWO CONCERNS. THE LD. CIT(A) AGREEING WITH THESE CONTENTIONS OF THE ASSESSEE HELD THAT YIELD COULD N OT BE CONSTANT AS IT DEPENDED ON VARIOUS FACTORS AND, THEREFORE, THE A.O S ACTION WAS A CASE OF PRESUMPTION AND SURMISES. ACCORDINGLY, THE LD. C IT(A) DELETED THE ADDITION. AGGRIEVED BY THIS, THE REVENUE IS IN APPE AL BEFORE US. PAGE 10 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE 20. THE LD. DR NARRATED THE FACTS AND PLACED RELIANCE O N THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 21. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 22. IT IS NOTED THAT EXCEPT A BARE COMPARISON OF ABSOLU TE FIGURE OF YIELD PERCENTAGE BETWEEN THE TWO CONCERNS, THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT PERCENTAGE OF YIELD SHOWN BY THE ASSESSEE WAS ON LOWER SIDE. IN THESE CIRCUMSTANCES, WE ARE O F THE VIEW THAT THE COMPARISON SO MADE IS NOT CORRECT, PARTICULARLY WHE N NEITHER PROCESSES NOR THE CAPACITY OF THE PLANT OR OTHER FACTORS, WHI CH COULD AFFECT THE YIELD, ARE ON RECORD. ACCORDINGLY, WE CONFIRM THE DECISION OF THE LD. CIT(A). THUS, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 23. AS REGARD TO GROUND NO.2, FACTS, IN BRIEF, ARE THAT THE A.O. MADE A DISALLOWANCE OF RS. 5 LAKHS OUT OF VARIOUS EXPENS ES DEBITED IN THE PROFIT AND LOSS ACCOUNT ON THE BASIS OF CERTAIN INSTANCES POINTED OUT BY THE SPECIAL AUDITOR AS HAVING NO SUPPORTING VOUCHERS. A GGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS CONTENDED THAT NO INCRIMINATING EVIDENCE WAS FO UND DURING THE COURSE OF SEARCH AND HENCE, SUCH AD HOC DISALLOWANC E WAS NOT WARRANTED. THE LD. CIT(A), HOWEVER, FOUND THAT THE EXPENDITURE TO THE TUNE OF RS. PAGE 11 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE 2,64,525/- WAS WITHOUT ANY SUPPORTING EVIDENCE AS P OINTED OUT BY THE SPECIAL AUDITOR, HENCE, SHE UPHELD THE ACTION OF TH E A.O. TO THAT EXTENT AND DELETED THE BALANCE DISALLOWANCE. AGGRIEVED BY THIS , THE REVENUE IS IN APPEAL BEFORE US. 24. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FIGURE SHOULD BE RS. 2,64,525/- INSTEAD OF RS. 5 LAKHS IN THE GROUNDS OF APPEAL, RAISED BY THE REVENUE. THEREAFTER, HE PLACED RELIA NCE ON THE ORDER OF THE A.O. 25. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 26. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 27. IT IS A CASE WHERE THE SPECIAL AUDIT HAS BEEN CARRI ED OUT. HENCE, THE DISALLOWANCE CAN BE MADE ONLY TO THE EXTENT OF SPECIFIC INSTANCES AS THERE IS NO FURTHER SCOPE FOR ESTIMATION. ACCORDING LY, WE UPHOLD THE ORDER OF THE LD. CIT(A). THUS, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 28. GROUND NO. 2 OF THE REVENUE STANDS DISMISSED. 29. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STA NDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PAGE 12 OF 12 - I.T.A.NO. 853/IND/2004 KOWA SPINNING MILLS LIMITED, INDORE THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH,2010. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH MARCH, 2010. CPU* 11123